One Important Reason I Don't Care If There Is A Housing Market Crash

This is an important post that I want to revisit. Especially as the housing market has shown signs of a downturn over the past months. With that being the case, I often get asked this question, “You’re investing in real estate? Now?! Still? Aren’t you worried about an impending housing market crash?!”

And my answer is still a big, fat “No!”

I really don’t worry about it. But yet it seems like everyone else is worrying about it.

Is there something wrong with everyone else? Or me?

Well, let me explain myself. And then you can judge for yourself!

A quick aside

I feel that this is important to clarify. If there is a housing market crash, it will obviously affect a lot of people. It will mostly affect those who are over leveraged either in terms of their primary home and/or investment properties. Of course, this is a bit of self inflected wound in most cases.

Regardless, however, of course I care that a housing crash would have this effect on others. That is not the question that I am addressing.

Instead, I’m addressing how I care about a housing crash in my personal situation as a homeowner and real estate investor.

Lastly, I’m not sure that a housing market crash is actually coming (even though I obviously don’t have a functioning crystal ball either). Here’s why…

Ok, now that that is out of the way…

Here’s why I don’t care at all (zilch) if there is a housing market crash

From two perspectives:

As a personal homeowner

My wife and I own our primary residence. We bought it about a year ago for 0% down using a physician mortgage.

Based on what we bought it for, it has since appreciated about $190,000 according to the Zillow Zestimate. Who knows how accurate that is? I don’t.

But I don’t really care. Because we don’t plan on moving. We bought the house knowing it met all of our financial and personal criteria for now and the foreseeable future. It’s not necessarily our “forever house” but it’s a “long darn while” house.

And this is exactly why I don’t care if the house has experienced market appreciation or depreciation. The market value of my personal home is equal to what someone will pay for it. Nothing more and nothing less. It’s that arbitrary.

So, that means that if I don’t intend to sell it, I really don’t care what anyone else thinks it’s worth. It’s “market value” could fall below the value that we paid for it. I still don’t care. I’ll keep paying the mortgage knowing that it still fits into my budget and won’t affect my financial plan.

But even more importantly…

I know that the real estate market arc is very similar to the stock market arc over the long term.

Both the real estate and stock markets are volatile in the short term but trend upward in the long term. Again, since I am not selling the house anytime soon, if the value drops, I know that I just have to wait some time and it will likely go back up.

That’s a nice thing.

As a real estate investor

But this is what people really want to know about!

Everyone knows that the housing market was really high these past few years. And we all know about regression to the mean so we expect that a housing market crash is on the horizon. I see a new article or post saying that one is imminent everyday for this or that reason. Especially since we have seen signs of housing prices going down with interest rates rising…

However, no one has a crystal ball. So no now knows. But I can guarantee that there will be a housing crash at some point.

What does this mean?

It means that if you invest in real estate, you need to expect to invest through a housing crash.

It means that you need a real estate investing plan where it doesn’t matter when a housing crash hits…because it will hit.

And that is exactly what my plan entails.

That is why I invest in cash-flowing rental properties

As I’ve talked about a bunch on this blog, I love direct real estate investing in cash flowing rentals.

This type of real estate investment makes money via:

Cash flow
Equity build up
(Forced) Appreciation
Tax savings

Want to know the great thing about all of these sources of wealth building via cash flowing properties?

None are dependent on the market value of the property!

A case example

Let’s say I buy a rental property for $100,000 and it cash flows 10% after mortgage and expenses.

Now let’s say that the housing market crashes and the market value of the property is now $50,000.

Is this a disaster? No! Who cares?!

The property still is cash flowing exactly the same. The tenants still pay the same rent no matter what the arbitrary market value of the property is. You still can build forced appreciation the exact same way. You get the same equity build up by renters paying down your mortgage and you can take advantage of the same tax savings via depreciation for example.

Nothing changed.

And that is the beauty!

Extenuating circumstances

You may be asking yourself what happens to all the peripheral factors that influence cash flowing rental properties and how they change in a housing crash.

Things like:

How many people are renting
People’s ability to pay and afford rent
The availability of quality investment properties

These are probably the big three that people worry about. Well, the bottom line is that, again, no one can say for sure what will happen to these factors.

But that doesn’t mean that any change in them will be bad for you as a real estate investor.

In fact, in a housing crash, more people are going to likely be looking to rent as they will no have their homes anymore. You can be a source of fair housing for them while they recover.

Even more, investment properties will, in effect, be “on sale.” So that’s the perfect time to buy low and then rehab, renovate, and/or rent out for a better return on investment.

It’s like what the stock market dips…that means that stocks are on sale! Real estate is the same way. So – go buy some!

It’s one of the reasons that I really love my way of real estate investing

Because it’s by the numbers. It’s rational investing rather than emotional investing. That’s what happens when you invest with a plan and strategy that don’t require being able to accurately predict the future.

Other real estate investment strategies like:

Flipping
Buying raw land
Buying properties for market appreciation

…They all rely on a functioning crystal ball. But not investing in cash-flowing rental properties!

Ready to learn more about investing in real estate as a physician?! Check out these resources:

What do you think? Do you worry about a housing crash? As a homeowner? As a real estate investor? Why or why not? Let me know in the comments below!